The Basis for Trade: Absolute Advantage and Comparative Advantage
Mercantilism
During the seventeenth and eighteenth centuries, mercantilism was the dominant doctrine of international trade. According to this doctrine, a country’s wealth was measured in terms of its holding of gold and silver. Mercantilists believed that exports would lead to inflows of gold and silver, and imports would lead to outflows of these precious metals. Thus, to increase a nation’s wealth, the country should increase its exports and decrease its imports. Mercantilists viewed trade as a zero-sum game, in which one country’s gain was at the expense of another country. Based on this mercantilist doctrine, governments placed a variety of taxes and restrictions ...
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